Q. WHAT’S THE PROBLEM?
A. Banks are worried about the crisis in the Eurozone, and do not know which other banks they can trust. That means they are cutting the amount they lend to each other.
Q. WHAT’S BEING DONE ABOUT IT?
A. Central banks in Europe, the UK, US, Switzerland and Japan will make loans to help banks that need more US dollars. They are having less difficulty borrowing euros, because of European Central Bank support.
Q. HOW DOES THAT WORK?
A. The central banks already offer one-week dollar loans to banks. These new loans only have to be paid back after three months. That gives the banks a bit more security and certainty about where their liquidity is coming from.
Q. HOW POPULAR WILL IT BE?
A. Judging by the market reaction -- very. The euro rose against the dollar on the news. In the height of the financial crisis the central banks offered similar three-month loans. In November and December 2008 over $11bn was borrowed from the Bank of England at each auction. This time round, banks will be able to borrow as much as they want – as long as they can provide collateral against the loans.